China Research

Currently, South America is receiving increasingly positive forecasts by international investors. This optimism is mainly motivated by high commodity prices and liberal reforms in some countries. However, I have heard this story before. More evidence is needed to believe in a forthcoming success story for South America.

So far uneven and only slight upswing

In my memory, South America has never been a broadly booming continent. And Brazil, by far the most important economy in South America, has been considered as an emerging country with a big potential through many years – without really sticking to its opportunities.

According to most predictions, South American GDP growth will slow down somewhat in 2026 compared to 2025 – and only see a slight improvement to around 2 1/2 percent next year. Such a growth outlook can hardly be described as a boom.

Looking at different countries, Paraguay and Peru seem to look better than the two biggest economies, Brazil and Argentina. Also after the re-election of president Lula, expectations of clearly better Brazilian economic growth remain limited. 

Furthermore, it does not look probable that Argentina will perform visibly better next year – nor will probably the other South American economies. Only Venezuela may achieve a notable growth improvement – but from very depressed levels. 

Conclusion: Sure, a commodity boom may support South American economies in forthcoming years. But we also know about the volatility of commodity prices. I would feel much more confident about South America if all – or most – countries finally could go for comprehensive institutional reforms.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

Remarks by professor Hubert Fromlet at the Baltic Sea Region & Emerging Markets Day, October 15, 2026, in Kalmar, arranged by Linnaeus University (Linnéuniversitetet)

As widely expected, the American-Chinese summit headed by Presidents Trump and Xi Jinping ended without notable progress in the two countries’ trade relations. And the European Union is still looking for seizable trade improvements to tackle China’s enormous trade surpluses. It remains to be seen whether the fresh preliminary trade agreement between the EU and China will mean decisive progress for the European economy, particularly for its suffering car industry.

One billion USD daily

China achieves currently a daily trade surplus of more than one billion USD vis-à-vis the EU – partly because of given cost advantages and competitive products but also due to unfair dumping of export prices and at least temporarily of the exchange rate.

Of course, the reasons for the excessive Chinese trade surpluses have two sides. The uncomfortable Chinese dumping issue has already been mentioned. But also Western companies and politicians made decisive mistakes in their China strategies.

What went wrong from the West?

For years, I have pointed in this blog and other published articles at insufficient Western skills on China’s political and economic systems. These shortcomings explain easily many wrong political and managerial attitudes and decisions on China.

It was certainly wrong by the EU to wait such a long time for a fairer Chinese trade policy. And how could Western corporate leaders believe that previous high profit margins on Chinese markets and extremely high GDP-growth rates could be maintained forever?

It also remains a conundrum why European politicians and corporate leaders did not react sufficiently on China’s fast progress in certain technological areas. 

In other words: Europe should also to some extent blame itself for the trade problems with China. But this is no excuse for China’s unfair trade policies.

More reciprocity could be a way forward

Now, when European trade tensions with China seem to increase again and attempts to move to more fair trade between China and the EU so far obviously did not work, time has indeed come for more promising solutions.

It may hereby be a good idea to focus more on reciprocity, i.e. that visible Chinese improvements of trade policy may lead to a lowering of EU tariffs. This is certainly not an easy call because of China’s lagging transparency and difficult definitions for the EU of what a Chinese policy improvement could be. Perhaps EU evaluators will have to decide on this by (partly) using qualitative criteria. 

But such a reciprocity approach could at least mean an incentive for Chìna to loosen ongoing inflexible support of export practices.

Hopefully, improvements of this suggested kind can also be accompanied by effective positive changes that are in the pipeline since a few days ago when EU-trade commisioner Maros Sefcovic and Chinese trade minister Wang Wentao achieved a preliminary agreement which still has to be accepted at the current top summit of all EU leaders. This agreement is mainly aiming at a substantial decrease of Chinese exports of electric and plug-in-hybrid cars by „up to 50 %“ in the coming four years (https://www.theguardian.com/business/2026/oct/09/china-agrees-to-curb-hybrid-car-exports-to-eu-in-landmark-deal).

Of course, such a deal leads to hope and positive expectations – but also to doubts. One unanswered question is about control or measurement of Chinese export reduction. Apart from this statistical quality issue, one may also wonder what the definition of what „up to 50 %“ may be – certainly a very stretchable objective according to its current description. Furthermore, no details have been published how the deal will be implemented (https://www.bruegel.org/first-glance/eu-china-trade-and-investment-understanding-welcome-buying-time).

Consequently, many question marks remain unanswered.

Swedish ideas

We know that Chinese car industry currently performs very poorly. This is both a structural and a business cycle phenomenon. 

First, there is an extreme overcapacity in Chinese car industry.

Second, only a few Chinese car producers seem to make reasonable profits.

Third, the domestic Chinese economy remains very sluggish, strongly driven by skeptical consumers. This may be the main explanation for China’s offensive car exports to the EU.

In this context, it may be interesting to pay some attention to recent remarks by the CEO of Swedish Volvo Car, Håkan Samuelsson. He said the other day that it would be the right answer to the Chinese to claim the same efforts by China as Europeans had to achieve in the Middle Kingdom when coming and producing there – but now applying this policy the other way around for Chinese production in the EU (see Svenska Dagbladet from October 6, 2026). However, in my view not only by CKD production in Europe but also by a negotiated essential European share of components in these Chinese cars – a share which currently is said  to be about 80 percent for the production of European cars in China.

Such an approach may be an example of future reciprocity for the real commercial world.

However, an important point against Chinese car production in Europe should be added – security.
One can be really surprised by the large number of potential security risks, mostly linked to IT/AI (https://www.aei.org/research-products/report/connected-and-autonomous-cars-security-risks-from-chinese-components/) . And apart from the security risks, security of the mentioned kind is not an issue for the EU in Brussels but for the single EU-member states. 

These security conditions make future Chinese car production in the EU more difficult than it seems to be. But it still appears possible that we in the future will see Chinese cars produced in Europe.

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University

Recently, the OECD published a new edition of its regular survey regarding the skills of 15-year-old students in reading, mathematics and science. Somewhat surprisingly for many Western analysts, China was measured as the number one country in the world.

Good conditions for future human capital formation

In 2025, around 760 000 15-year-old young students from 91 countries participated in the OECD’s regular analysis of the educational standard of this age group. China clearly topped the ranking of this PISA report.

I am not able to have an opinion on the quality of the Chinese ranking, particularly since the quality of Chinese statistics often has been lacking in the past. However, one may assume that the OECD did their very best to achieve applicable quality levels in its latest PISA report. 

For this reason, the OECD probably only wanted to include the jurisdictions of big places like Beijing, Shanghai, Jiangsu and Zhejiang (BSJZ) in its research since it certainly would have been impossible to measure school performances in even larger areas or the whole country.

Coming to the results of the PISA ranking, China has some real reason for being proud of its achievements – and countries like the U.S., Germany and Sweden rather the opposite. These latter countries did not climb higher than to number 12, 21 and 23 (when excluding Macao and Hong Kong). At the same time, Asian countries dominated clearly – with Singapore at 2, Japan at 4 and Korea at 6.

Looking at the Chinese results, the following achieved points could be noted (OECD average in brackets):

Science 597      (ranked as no 1, OECD 482)

Reading 527     (ranked as no 2, OECD 461)

Math     612      (ranked as no 1, OECD 463)

Solving IT problems  560 (no 2, OECD 500).

Time for the right conclusions in the West

Sure, Western countries do not always consider China as a fair trading partner. But they should also observe that Chinese decision-makers use to have clear long-term strategies. One of them regards education and the formation of human capital as a broad contributor to economic growth (see the research of Barro, Romer, Murphy, etc).

It is therefore high time that politicians in, for example, Germany and Sweden wake up. The PISA survey demonstrates that improvements of competitiveness not only are an issue of costs and fair trade – but also of educational ambitions, human capital and skills.  Finally: It should be reminded that individual ambitions play an important role as well. In China, 55 percent of the students were top performers according to the OECD, whereas in Germany and Sweden only 14 percent. These latter numbers tell us a lot!

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University